The Court remarks preliminarily that it faces an issue of first impression: specifically, whether the customer of a letter of credit may maintain statutory and common law causes of action against a bank authorized by the issuing bank under a red clause to advance funds to the beneficiary of that letter of credit.

I. Factual Background

Feinberg imports and sells clothing in the United States, and Fashion Will supplies Feinberg with both raw materials and finished garments. In March, 1995, Feinberg contracted with Fashion Will to purchase 30,000 dozen cotton rompers.
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Fashion Will requested that Feinberg obtain a letter of credit naming Fashion Will as the beneficiary. On March 28, 1995, Feinberg caused Meridian Bank ("Meridian"), located in Philadelphia, Pennsylvania, to issue a letter of credit ("Letter 1") in the amount of $ 1,000,000, naming Fashion Will as the beneficiary. (See Pl.'s Mem. Opp. Def.'s Mot. Summ. J. Ex. 9 ("Pl.'s Mem.")). Under the terms and conditions of Letter 1, after Fashion Will presented specific documents to Meridian indicating that Fashion Will was making a shipment of merchandise to Feinberg, Meridian would provide Fashion Will with the purchase price for the merchandise. Under Letter 1, Feinberg remained ultimately liable to Meridian.

On March 30, 1995, Fashion Will asked Feinberg to modify Letter 1 by adding a "red clause." Fashion Will told Feinberg that Fashion Will could not complete Feinberg's order without the red clause. The red clause provided:

REIMBURSEMENT INSTRUCTION: UPON RECEIPT OF CONFORMING DOCUMENTS WE MAKE ADVANCE PAYMENT AS INDICATED IN THE RED CLAUSE FACILITY ABOVE AND DEDUCT FROM THE PROCEEDS OF PAYMENTS MADE BY US AND ALL AMOUNTS DUE TO YOU. IN THE EVENT SUCH DOCUMENTS ARE NOT PRESENTED TO YOU ON OR PRIOR TO JULY 30TH 1995 THEN YOU MUST SEND US TESTED TELEX NOT LATER THAN THE SPECIFIED L/C EXPIRY DATE INDICATING THE SAME AND THE AMOUNT OF OUTSTANDING ADVANCES PLUS INTEREST DUE AND WE WILL REIMBURSE YOU IN ACCORDANCE WITH YOUR INSTRUCTIONS.

All other terms and conditions of the original credit instrument remain unchanged.

On April 4, 1995, the red clause was added to Letter 1, allowing Central Asia to advance Fashion Will money needed to purchase raw materials to fill Feinberg's order without actually requiring Fashion Will to first present the specified documents to Meridian. (See Pl.'s Mem. Ex. 13). In the future, after Fashion Will shipped the merchandise to Feinberg, Central Asia was to present the specified shipping documents to Meridian -- sight drafts and an undertaking by Fashion Will certifying that the advance was being used to purchase raw materials of finished products -- in conjunction with Central Asia's request for reimbursement. Between April 6, 1995 and September 5, 1995, in accordance with Fashion Will's requests, Feinberg induced Meridian to modify Letter 1 to extend certain dates and increase the amount of credit. (See Pl.'s Mem. Exs. 17-18; Exs. 20-24; Ex. 28).

On April 10, 1995, Central Asia sent a telex to Meridian stating that it had advanced Fashion Will $ 600,000 pursuant to Letter 1's red clause. Central Asia attached the undertaking from Fashion Will. Central Asia repeatedly advised Meridian of its advances to Fashion Will via telex on July 21, 1995, July 25, 1995, September 11, 1995, and September 14, 1995. After Central Asia sent each telex to Meridian, it mailed letters confirming the telexes and enclosing the undertakings by Fashion Will to Meridian's office in Philadelphia. On September 1, 1995, Fashion Will told Feinberg that a typhoon in China had flooded its factory and damaged the merchandise, necessitating a new letter of credit. Feinberg then caused Meridian to issue a second letter of credit ("Letter 2") for $ 310,199.18, which also contained a red clause. (See Pl.'s Mem. Ex. 39).

On September 27, 1995, Fashion Will informed Feinberg that financial difficulties prevented it from filling Feinberg's orders. At this meeting, Fashion Will also admitted that it used the red clause advances to reduce its indebtedness to Central Asia. According to Fashion Will, the collateral securing its loans from Central Asia had decreased in value, and Central Asia pressured it to use the red clause advances to pay off the loan, instead of purchasing raw materials for Feinberg's order. On December 1, 1995, Central Asia made calls upon Meridian on Letter 1 and Letter 2.

II. Standard of Review

Rule 56(c) of the Federal Rules of Civil Procedure provides that summary judgment "shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c). An issue is "genuine" only if there is sufficient evidence for a reasonable jury to find for the non-moving party. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S. Ct. 2505, 2510, 91 L. Ed. 2d 202 (1986). Furthermore, bearing in mind that all uncertainties are to be resolved in favor of the nonmoving party, a factual dispute is only "material" if it might affect the outcome of the case. Id. Rule 56(c) directs summary judgment "after adequate time for discovery . . . against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S. Ct. 2548, 2552, 91 L. Ed. 2d 265 (1986).

this agreement, each Credit and all transactions in connection with each Credit shall be interpreted, construed and enforced according to: (i) the 'Uniform Customs and Practice for Documentary Credits' . . . (ii) the laws of the Commonwealth of Pennsylvania, including without limitation the Pennsylvania Uniform Commercial Code; and (iii) the Acts of the Congress of the United States of America.

(Def.'s Mem. Ex. 5 at 9). The red clauses did not alter this provision in the letter of credit. (See Def.'s Mem. Ex. 2 at 2 (stating that "all other terms and conditions of the original credit instrument remain unchanged")).

A letter of credit is basically "a promise by the 'issuer' (commonly a bank) to the 'beneficiary' (usually a seller of goods) to extend credit on behalf of the beneficiary's customer (usually a buyer of goods)." Wood v. R.R. Donnelley & Sons Co., 888 F.2d 313, 317 (3d Cir. 1989) (citation omitted). See Tudor Dev. Group, Inc. v. United States Fidelity & Guar. Co., 968 F.2d 357, 360 (3d Cir. 1992) (defining letter of credit as "an engagement by an issuer, usually a bank, made at the request of a customer for a fee, to honor a beneficiary's drafts or other demands for payment upon satisfaction of the conditions set forth in the letter of credit") (citing Article 5 § 5103(a)); Leney v. Plum Grove Bank, 670 F.2d 878, 881 (10th Cir. 1982) (describing letter of credit as "closely akin to a cashier's check or other negotiable instrument issued by a bank"). Letters of credit have long facilitated the flow of international commerce by providing assurance to the "seller of good[s] (i.e., the 'beneficiary'. . .) of prompt payment upon presentation of the documents. A seller who would otherwise have only the solvency and good faith of his buyer as assurance of payment may, with a letter of credit, rely on the full responsibility of the bank." Intraworld, 336 A.2d at 323.

"The essential function of this device is to assure a party to an agreement that he will receive the benefits of his performance." Wood, 888 F.2d at 317 (citation omitted). When the seller is unfamiliar with the creditworthiness of the buyer, the bank issues a letter of credit and "substitutes its credit for that of the customer," thereby assuring the seller of receiving payment. Leney, 670 F.2d at 881. See Banco Nacional, 726 F.2d at 91 (referring to letter of credit as an "efficacious arrangement which assures payment for completion of an obligation by placing the duty to pay on an issuer of good financial reputation"). The typical letter of credit transaction involves three distinct relationships:

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the underlying contract between the customer and the beneficiary which gave rise to their resort to the letter of credit mechanism to arrange payment; the contract between the bank and its customer regarding the issuance of the letter and reimbursement of the bank upon its honoring a demand for payment; ...

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